Investment Bank Praises Bitcoin Core Scaling Roadmap in Price Report

Investment Bank Praises Bitcoin Core Scaling Roadmap in Price Report

By Kyle Torpey - min read
Updated 11 March 2022

Investment bank and asset management firm Needham & Company recently released a report regarding their views on the future price of bitcoin. Their price projection has increased to $848 from $655 earlier in the year.

Needham & Company has managed or co-managed 775 public offerings, and the firm was an underwriter for Google’s IPO in 2005.

In their report, Needham & Company discuss the value of new protocol improvements coming to Bitcoin over the next six or seven months. In particular, the investment firm are looking forward to Segregated Witness, the Lightning Network, sidechains, and various privacy improvements.

“We find the outlook very encouraging, and we believe the short- to intermediate-term horizon is among the most exciting Bitcoin has seen,” notes the report.

The developments pointed out by Needham & Company can all be found in the Bitcoin Core scaling roadmap (with the exception of sidechains which are sometimes not viewed as a mechanism for scaling). Needham & Company also explicitly stated their support for the generally conservative approach taken by contributors to Bitcoin Core.

Segregated Witness and The Lightning Network

In their report, Needham & Company point to Segregated Witness as a key improvement for the Bitcoin protocol for three main reasons: it’s a capacity increase, it eases the process for further scalability, and it fixes transaction malleability.

Segregated Witness’s fix for transaction malleability is the final piece of the puzzle before the Lightning Network can be properly deployed on Bitcoin’s mainnet. Needham & Company sees this second layer of payment channels playing a key role in scaling Bitcoin to more users. “The enabling factor that allows for dramatically higher throughput on a lightning network relative to the Bitcoin network itself is that it’s much easier to scale point-to-point transactions (as on a lightning network or payment channel) than those that need to be broadcast to the entire Bitcoin network,” the report states.

The report mentions a requirement to “lock up” fund on the Lightning Network as a potential downside of the system. In the past, the co-authors of the Lightning Network white paper have disputed this claim. The report also indicates that the downside of locking up funds on the Lightning Network is minor when considering the substantial benefits it enables.

Segregated Witness, which would enable the deployment of lightning network protocols on top of Bitcoin, has been merged into Bitcoin Core, but the code to eventually activate the protocol change is currently expected to be released in version 0.13.1 by the end of October.


Sidechains were first publicly announced roughly two years ago, but there have yet to be any public sidechains made available on Bitcoin’s mainnet. Once sidechains can be implemented, Needham & Company see them as adding value by allowing more innovation to take place in the bitcoin currency network.

“Conceptually, sidechains bear some resemblance to ‘special economic zones’ where a country has established different (relaxed) constraints in order to encourage a particular type of activity or industry while still maintaining a base layer of compatibility with the remainder of the country (the Bitcoin network in this case),” says the report. “The two primary consequences of this ‘best of both worlds’ technology are an accelerated development cycle and new Bitcoin functionality.”

“This is particularly important considering how difficult it is to achieve a high degree of network-wide consensus—for instance, if a feature can only be added with 95%+ of the network in agreement, very few features will ever be added,” the report adds.

Privacy-Related Improvements

Needham & Company are also excited about potential privacy improvements that are in development for Bitcoin. According to their report, the investment firm is worried about the negative effect a lack of anonymity can have on bitcoin’s fungibility. “We believe that fungibility will ultimately be critical to Bitcoin retaining its value,” says the report.

Although Needham & Company are worried about fungibility, they did note the existence of CoinJoin and the developments of Confidential Transactions, TumbleBit, and sidechains as positive indicators.

“The gold standard for privacy is the ability to be able to withhold as much information as possible (transaction amounts, addresses, etc) but to have the ability to selectively reveal transaction activity and information exclusively to intended parties,” explains the report. “We’re optimistic that this will eventually be possible in Bitcoin.”

Needham & Company’s description of the gold standard of privacy is rather similar to how Zcash is intended to work. Having said that, the technology behind Zcash may eventually come to Bitcoin by way of a sidechain.

Support for Bitcoin Core Contributors

Near the end of their bitcoin report, Needham & Company specifically praised the Bitcoin Core development community. After pointing out that the most recent release of Bitcoin Core contained contributions from 101 different developers from around the world, Needham & Company contrast the Bitcoin Core contributors to the Ethereum development community.

In their report, Needham & Company used Ethereum’s attempt to hard fork after the incident with The DAO as an illustration of why hard forks can be problematic. The investment firm also says the popularity of Ethereum has been dampened in the aftermath of The DAO, and they point to Rootstock as a competing platform that intends to operate as a sidechain to Bitcoin.

“The loose-knit group of developers (‘Core’) that contribute code to the main Bitcoin reference client have, in our opinion, been prudently ‘conservative’ with regard to protocol changes,” states the report. “Many updates from Core over the past 18+ months have laid the groundwork for second-layer technologies (such as lightning networks and sidechains) to be built on top of Bitcoin while also helping alleviate some short-term scaling pressure (segregated witness + Schnorr signatures could scale Bitcoin throughput by ~2x+ without introducing a hard fork).”

“We see this ‘conservatism’ as prudent given the high stakes involved (Bitcoin market cap > $9B) and because for Bitcoin to be used as a digital gold and as a payment network users need to be reasonably confident that there won’t be potentially jeopardizing changes at the protocol level,” the report adds.
Needham & Company state that they’re supportive and encouraged by efforts to create a highly-stable base protocol that won’t be jeopardized by higher-level failures. This is a direct statement in regard to the debate over whether Bitcoin should be scaled on-chain or via various upper-layer options.